Entrepreneurs Are the Key To Economic Development
Entrepreneurs Are the Key To Economic Development by Sascha Klocke – Mises
Questions of economic development have long been long held a prominent position in economics. How did the most advanced economies get to where they are? What can less-advanced economies do to catch up with the leading pack?
After World War II, a whole sub-field of economics emerged to focus on these questions. Today, we call it development economics. Instead of simply explaining historical trends, this field’s main focus lies on discovering what would help less-developed countries achieve more economic growth and join the predominantly Western countries at the top of the economic ladder.
Compared to mainstream economics, development economics is quite a heterodox discipline in which many theoretical approaches are pursued. This can be both a curse and a blessing. On the one hand, it means that development economics is a field where “every economic fallacy ever refuted is still alive and well” (to paraphrase economist GP Manish), but it also means that there is room for free-market approaches and different methodologies to make themselves heard.
As such, it is a field in which Austrian economists might fruitfully engage. To this author’s knowledge, however, such Austrian engagement has so far not been wide-spread. One reason for this might be that, ultimately, Austrian economics often boils down to “liberate markets” and “protect private property rights.” These are suggestions that are superficially similar to the neoliberal approach that has been popular since the 1980s and that have consequently been tarnished by neoliberalism’s mixed success in promoting economic development.
How, then, could Austrian economics engage on a more in-depth level with development economics? One course of action would be to refute, yet again, the fallacies at the heart of the theories of the latest generation of protectionists and interventionists.
The Austrians could point to Ludwig von Mises’ elaboration of the economic calculation problem, F.A. Hayek’s tracts on knowledge, and support market-friendly development economists by enumerating the benefits of free markets and free trade. What I would suggest, however, is to move one step further and build a framework for understanding economic development by focusing on a unique aspect of Austrian economics: a cutting-edge theory of entrepreneurship.
The Role of the Entrepreneur
The entrepreneur has all but disappeared from mainstream economic theories, and only makes rare appearances in contemporary literature on economic development. Instead, one usually encounters neoclassical market analysis in which an idealized “economic man” reacts mechanically to universal incentives. Or, the focus is on the state which takes the lead in combatting “market failures” or kick-starting economic development. In Austrian theory, however, the market is not a machine, but the outcome of purposeful human action. One of the most important actors is the entrepreneur, who is, in Mises’ words, the “driving force of the whole market system” and brings together the complementary factors of production, guided by profit and loss.